On December 31, 2010, Pace Co. paid $3,000,000 to Sanders Corp. shareholders to acquire 100 percent of the net assets of Sanders Corp. Pace Co. also agreed to pay former Sanders shareholders $200,000 in cash if certain earnings projections were achieved over the next two years. Based on probabilities of achieving the earnings projections, Pace estimated the fair value of this promise to be $150,000. Pace paid $10,000 in legal fees and incurred $10,000 in internal cash costs related to management’s time to complete the transaction. Exhibit 7.33 provides the book and fair values of Sanders Corp. at the date of acquisition.

Required

a. Record the merger using the financial statement effects template or journal entries.

b. How would the financial effects change if the cash paid was $2,000,000?